Some states, such as Arizona and California, are bouncing back quickly, after falling more deeply into recession earlier than the rest of country did. Employment in Arizona is up 2.3 percent for the third quarter over a year earlier. In these states, and in the West more broadly, the housing sector bottomed faster it did than other parts of the nation, and housing is contributing again to growth and employment there.
In Arizona, construction is adding to growth. There has been such a depletion of the housing stock that has been drawn down . . . that were now starting to see strong sales growth and price growth in areas like Phoenix, Di Natale said. They were the worst of the worst in the recession, and what theyre experiencing now is a sharp bounce-back.
Even the Rust Belt states of Ohio and Indiana have seen employment revive as the auto industry recovers from the structured bankruptcies of General Motors and Chrysler. Auto sales nationally have been strong, pulling up manufacturers, and these two states saw employment jump 1.9 and 2.4 percentage points, respectively, in the third quarter over the same three months of last year.
These are all signs that the economy continues to recover from whats widely seen as the deepest downturn since the Great Depression.
But the latest growth numbers from the Commerce Department also show that business investment fell from July to September. Economists worry that the uncertainty surrounding what happens in coming weeks regarding the federal budget crisis of looming spending cuts and tax increases called the fiscal cliff is hurting growth and investment.
At years end, Bush administration-era tax reductions, extended by Obama, are set to expire. Several other tax breaks are set to end, too, and it comes as deep across-the-board spending cuts are scheduled to take effect if Congress cant reach a budget deal. On top of that, the United States is expected to hit its debt ceiling in late February or March, and the next president will have to work with Congress either to raise it or to reduce spending severely.
If all these things are left without a fix, it could shave more than 4 percentage points off growth. With a current growth rate around 2 percent, that would amount to instant recession at a time when the Federal Reserve and Treasury have fewer bullets left to reverse it.
On top of fiscal-cliff worries, Chinas sizzling economy has been cooling off. Few economists expect a so-called hard landing, in which employment and home prices plunge. Chinas growth is important for the United States, which exported more than $100 billion in goods there last year, and its even more important for other big developing countries such as Brazil and India, which help global economic growth.
Should Romney defeat Obama, hes pledged to label China a currency manipulator on his first day in office and to pave the way for retaliatory penalties against goods that are unfairly cheap and harm U.S. manufacturers. While thats an attractive political stance, its sure to provoke an important trading partner thats already threatened to respond in kind.
I think it would be bad for the world in general, said Pablo Goldberg, the head of emerging market research for the big global bank HSBC.
If lawmakers could end their streak of gridlock and find common ground on debt and deficit issues, it could provoke more growth in the United States and abroad than currently is forecast, Goldberg said.
Good news can drive the animal spirits and spark growth, he said.